Bangladesh to pay more for China loan than for Indian loan

[Contrarian]

No just stating the obvious. An India to India road and rail link does absolutely nothing for Bangladesh.

A road and rail link that long being built in Bangladesh is initself an economic value multiplier. Any kind of investment in infrastructure stimulates economic activity and is VERY beneficial to Bangladesh.

Are you even semi literate in the even the most basic principles of economics?

 

[EjazR]

Well there is no comparison with the Indian loan and chinese loan in just this specific case. Its larger and also cheaper over all.

Just for a recap on what the 1Billion USD credit line was suppose to do.
$1b credit line to Dhaka

THE DEAL, THE TERMS
The main terms and conditions of the credit line agreement include 1.75 percent interest (fixed) per annum, 0.5 percent commitment fee per annum on unutilised credit after 12 months from the date of contract approval, and 20 years' repayment period including a grace period of five years.

"This one-billion-dollar line of credit is the largest ever amount given by India to any country," said Pranab.

"I am confident that this credit line will be the stepping stone for a shared destiny and will transform our bilateral engagement," he said at the loan signing ceremony.

Muhith said, "India's assistance in improving the railway infrastructure will facilitate Bangladesh's transit to Bhutan and Nepal."

THE FOURTEEN PROJECTS
The first project is on procurement of six high-powered dredgers at $71.69 million. Of the dredgers, one will be used for dredging at Mongla Port while three for Bangladesh Inland Water Transport Authority and two for Bangladesh Water Development Board.

The second project is related to construction of an internal container river port at Ashuganj at a cost of $36.23 million. Bangladesh and India have recently signed an agreement under which Ashuganj in Bangladesh and Silghat in India have been declared ports of call.

The third project is to buy 10 broad gauge locomotive engines worth $31.55 million for Bangladesh Railway. The fourth, fifth, sixth and seventh projects are also related to Bangladesh Railway.

Some 125 broad gauge passenger coaches will be bought at a cost of $53.63 million under the fourth project, while 60 tank wagons for fuel oil transportation and two break vans at a cost of $8.85 million under the fifth project.

The sixth one is on buying 50 metre gauge flat wagons and five break vans at a cost of $4.55 million for Bangladesh Railway.

Under the seventh project, two railway bridges -- 2nd Bhairab Bridge and 2nd Titas Bridge -- will be constructed, which will cost $120 million.

The next five projects are related with road transport. The eighth one is to buy 300 double-decker buses for Bangladesh Road Transport Corporation (BRTC) at an estimated amount of $29.65 million.

Under the ninth project, 50 articulated buses would be bought for BRTC at a cost of $6.12 million.

The 10th one is related to development of road communications for a land port. Under the project, Sarail-Brahmanbaria-Sultanpur-Akhaura-Senarbadi road will be constructed at a cost of $33.82 million.

The 11th project is for construction of an overpass at Jurain rail crossing and a flyover at Malibagh rail crossing in Dhaka. These will cost $31.44 million.

Project number 12 is purely on connectivity between Bangladesh and India. Under this project, a road will be constructed between Ramgarh and Sabroom [Tripura's southern border town] at a cost of $14.53 million.

An amount of $150.86 million will be spent for the 13th project, which is for setting up power gridline between India and Bangladesh. Under the project, a 400KV grid inter-connection between Bheramara of Bangladesh and Baharamapur of India will be set up.

The 14th project has four sub projects related to capacity building of Bangladesh Standard and Testing Institute (BSTI). Laboratories will be set up at a cost of $8.92 million to test foods, cement, brick and gold.

 

[EjazR]

$770m Chinese loan tied with conditions

The government is going to sign a $770 million tied loan deal with China, which will require selection of two Chinese firms to set up a fertiliser factory and lay out telecom network.

This will leave no scope for Bangladesh to get the best price offers or look for technology options.

Such selection of contractors is required under the new lending policy of China.

After discussing the issue at several high-level meetings, the government has agreed in principle to the Chinese conditions, as it has no alternative source of funding for these two projects, said sources at Economic Relations Division (ERD).

Once the prime minister gives the go-ahead, the ministries concerned will take steps to ink the deal.

Of the loan amount, $559 million will be for the setting up of Shahjalal Fertiliser Factory and $211 million for the introduction of 3G technology and expansion of the existing 2.5G network, added the ERD sources.

ERD documents say natural gas will be available for Shahjalal factory in future, but Petrobangla's forecast does not show any surplus gas supply in the coming years. An acute gas crisis has compelled the government to cut gas supply to the existing fertiliser factories.

Interest rate on the Chinese loan is two percent and it is payable within 20 years with a five-year grace period. Besides, the commitment charge is 0.2 percent and management fees are 0.2 percent.

ERD sources mentioned that the interest rate is slightly higher than that of the $1billion credit from India under the recently signed deal but it is lower than that of suppliers' credits offered by China in the past. The rate of interest on Indian credit is 1.75 percent and commitment charge is 0.5 percent.

The Chinese government set conditions that Bangladesh will have to sign commercial contracts with China National Complete Plant Import and Export Corporation Ltd to get credit for Shahjalal factory and with China National Machinery and Equipment Import and Export Corporation for 3G technology and 2.5G network.

An ERD official said signing of the commercial contract is mandatory as per China's new credit policy. And the ERD had sought clarification from the Chinese government as to why a commercial contract has to be signed beforehand.

The Chinese government informed the ERD that it has introduced the new policy for giving concessionary loans.

Against this backdrop, an inter-ministerial meeting with Finance Minister AMA Muhith in the chair on September 8 took up the issue. It was attended by ministers for planning, industries and post and telecommunications, the prime minister's economic adviser, governor of Bangladesh Bank and high officials of the ministries concerned.

The meeting decided that the government will accept the Chinese conditions and sign the agreement.

It noted that in signing the commercial contract, the highest caution has to be exercised to ensure that the interest of Bangladesh is upheld.

The two projects have been included in the current fiscal year's annual development programme. Shahjalal factory project is scheduled to be completed by June 2013 and the 3G Technology project by June 2012.

Sources pointed out that during the prime minister's visit to China last year, Beijing expressed its interest to give the credit as part of providing loans for different projects.

 

[eastwatch]

A road and rail link that long being built in Bangladesh is initself an economic value multiplier. Any kind of investment in infrastructure stimulates economic activity and is VERY beneficial to Bangladesh.

Are you even semi literate in the even the most basic principles of economics?

@malaymisra, you are getting very hard on us. You have conveniently forgotten that our forefathers started learning themselves in British system 100 years after you have adopted it. So, it is this legacy that has kept us semi and half-literate. Even in 1947, only 5% of our people could read and write. We are essentially the scion of those illiterate farmers. So, you may forgive us for being half literate.

I think, your assessment on economy is generally correct. An investment in an industry (in this case Chinese) gives production almost immediately, but investment in social infrastructure (by India this time) pays in a long term basis. However, both types of investments are necessary. A country cannot just run on a single wheel.

I just hope, our engineers will learn from yours' when the infrastructural works are undertaken by your consulting/construction companies. In Bangladesh, it is very strange that, in many cases, BUET (BD University of Engineering & Technology) gets some consultancy jobs, and there are not many efficient consulting companies in the country. But, india traditionally has. BD is currently suffering from this brain deficiency.

 

[TopCat]

Janab Ezaj,
You again bringing comparison between two loans which are completely in different nature.

 

[TopCat]

I just hope, our engineers will learn from yours' when the infrastructural works are undertaken by your consulting/construction companies. In Bangladesh, it is very strange that, in many cases, BUET (BD University of Engineering & Technology) gets some consultancy jobs, and there are not many efficient consulting companies in the country. But, india traditionally has. BD is currently suffering from this brain deficiency.

How could you have consulting company when we never had any big infrastructure projects. It took us long 25 years to start Jamuna bridge but it took us merely few months to get the Padma bridge project going. Yes once we have all the parameter eshtablised which could be gained from previous projects then the next projects will be very fast.
You wont have any shortage of engineers or consultant in building roads, bridge, flyover etc anymore. But we need to learn how to build Metro rail now.

India is big country so they had few big projects here and there all the time, so there were few companies. But now they are having some really very large scale projects which might be helpfull for us to share experience with.

 

[eastwatch]

You wont have any shortage of engineers or consultant in building roads, bridge, flyover etc anymore. But we need to learn how to build Metro rail now.

With our present mind set, it may be difficult for Bangladeshi engineers to learn from the metropolitan construction. Govt must establish certain kind of private consulting firms in ordert to absorb technology from these projects.

In lieu of which foreign company (A) gets the contracts for, say, surveying, design/consulting and construction, BD govt must employ a similar not-so-experienced Deshi company (B) to work alongside (A). B company will be working on behalf of the BD Railway (C). (A) company must be made obliged to submit all the reports and data to this (B) company instead of supplying them directly to the (C) company, whose engineers, being govt people, are naturally inefficient and are without initiative.

(B) company checks the report & data, and submit these to and consults with (C), finalizes the decision and then sends back the feedback to (A). If this system is maintained, there will be a steady transfer of technology, know how and knowledge.

All the international projects are done in this way in developing countries like India, Thailand or Singapore when a project is awarded to foreigners. But, we do not do this and we do not learn anything from the knowledgeable (A) company engineers. It has been happening since Pakistan time.

There were hundreds of projects in Pakistan time, but there was no system to learn from them. The system was faulty. Today, the BD govt is only following the same faulty system. Japan had shown us the way to develop about hundred years ago. Japan had adopted more or less the system I have described above. We must be pragmatic in our thinking as the Japanese were.

Learning is a long process. But, if we go for a short cut we will not learn technology. This has been happening to us since after partition in 1947. India followed a longer route, so they can now build almost anything by themselves. It is time we learned from Indian way, too.

 

[Aditya Jaisingh]

Practically Bangladesh gets nothing from the Indian loan. Its a complete waste of money and time for Bangladesh.

India's loan:Waste of money
China daddy's loan:Wow!,Thank you!

Just accept it,you can't take India's rising status,the heriditary anti-Indian virus is plagued amongst Bangladeshis and Pakistanis

 

[EjazR]

Janab Ezaj,
You again bringing comparison between two loans which are completely in different nature.

Iajdani saab, this is what I said
Well there is no comparison with the Indian loan and chinese loan in just this specific case.

because the Indian loan is in a completely different (higher) ball game. The Chinese loan is specifically around two fertiliser plants while the Indian loan is around 14 different projects targeting roads, ports, bridges, power lines, buses as well as stardards institutes that will bring it up to global standards.

So it just doesnt make any sense comparing the two loans. I agree with you completely on that.

 

[Contrarian]

@malaymisra, you are getting very hard on us. You have conveniently forgotten that our forefathers started learning themselves in British system 100 years after you have adopted it. So, it is this legacy that has kept us semi and half-literate. Even in 1947, only 5% of our people could read and write. We are essentially the scion of those illiterate farmers. So, you may forgive us for being half literate.

Im sorry, i donot forgive Munshi for talking crap and pretending as if he knows something. If he comments that the projects for which India is lending bring no benefit to Bangladesh then i have full right to call him on knowing absolutely nothing about economics.

If a person does not know something, he should not pretend to the contrary and pass judgements.

I think, your assessment on economy is generally correct. An investment in an industry (in this case Chinese) gives production almost immediately, but investment in social infrastructure (by India this time) pays in a long term basis. However, both types of investments are necessary. A country cannot just run on a single wheel.

The Indian loan will not be used on developing social infrastructure but physical infrastructure. Without good basic physical infrastructure other types of industries cannot sustain like manufacturing plants, etc, etc.

Infact this is one of the main choke points of the Indian economy. Manufacturing is being constrained by available physical infrastructure! That is why you hear the Indian PM saying that India needs $300bn to overcome infrastructural constraints!

Indian loan will be used to build highways and rail lines which apart from generating local employment will also stimulate economic activity in the region, like some companies might setup their manufacturing plants in that area to take advantage of the infrastructure developed.

But this man, Munshi, boldly goes on to declare that investment in these things in BD will not yield any benefit for BD!

I just hope, our engineers will learn from yours' when the infrastructural works are undertaken by your consulting/construction companies. In Bangladesh, it is very strange that, in many cases, BUET (BD University of Engineering & Technology) gets some consultancy jobs, and there are not many efficient consulting companies in the country. But, india traditionally has. BD is currently suffering from this brain deficiency.

Definitely, that is the only way to go. BD must designate companies that work closely with Indian companies and have offset agreements that bring tech and expertise to local firms.

 

[eastwatch]

$770m Chinese loan tied with conditions

The government is going to sign a $770 million tied loan deal with China, which will require selection of two Chinese firms to set up a fertiliser factory and lay out telecom network.

This will leave no scope for Bangladesh to get the best price offers or look for technology options.

Such selection of contractors is required under the new lending policy of China.

After discussing the issue at several high-level meetings, the government has agreed in principle to the Chinese conditions, as it has no alternative source of funding for these two projects, said sources at Economic Relations Division (ERD).

Once the prime minister gives the go-ahead, the ministries concerned will take steps to ink the deal.

Of the loan amount, $559 million will be for the setting up of Shahjalal Fertiliser Factory and $211 million for the introduction of 3G technology and expansion of the existing 2.5G network, added the ERD sources.

I think, even Chinese loan interest is very low at 2% per anum. The fertilizer factory is to be built by about $560 million. The report did not say anything about the production capacity of this factory. I assume it to be about 1500 ton/day or 450,000 ton/yr. Economists usually put the capital:output ratio in a poor country at
3 : 1. Let us check how far this assumption is true for this factory.

Govt selling price of fertilizer is Tk80,000/ton (a 50kg bag sells at Tk4,000) or about $1160/ton. At this price the value of one year's production is about $550 million. If this is correct, then BD will recover the entire loan in just over one year. But, then, of course, there are expenditures for labour, management, maintenance, natural gas, electricity, water, jute bags, transportation and many many others.

By taking into account all the adverse situation that may arise, it can safely be said that the capital:output ratio will be no more than 3:1 in the said project. So, it is needless to say that a 2% interest per anum is nothing comparing to the benefit we will be getting from this factory.

However, Indian loan of $1 billion will also benefit the country if this money is used for its intended purpose, that is building our infrastructures. In both the cases the interest rate is not that high comparing to the benefits these will bring to the country.

 

[CardSharp]

This Indian obsession of comparing itself with China is getting a little ridiculous.

 

[true_indian]

This Indian obsession of comparing itself with China is getting a little ridiculous.

Wow..is that the only thing you saw all the time you on the forum. Didn't you hear all the complaints from Bangladeshis about higher interest rates that we are charging them and their best-est(if there is a word as such) Chinese friends are giving away loans at literally zero interest. India is just using them while China is developing them nonsense.

We are not comparing with China but we are repudiating the accusations that were laid before.

 

[saleen_s7]

China can afford to give us loans w.o much interest.. and current loan for fertilizers is also beneficiary for Bangladesh as it helps generate some sort of income ( i e give the money back) . However, the Indian loan does not generate visible income and by chance if the bnp govt takes on power next term, it will be pretty reluctant dealing with the mess awami regime is leaving behind thus causing more economic harm. Not to mention, India is a pretty inferior country when compared to China, and regardless of what they might claim, they are a developing country and any developing country does not hand out loans out of thin air w.o incentives.

 

[DesiGuy]

This Indian obsession of comparing itself with China is getting a little ridiculous.

I agree.